Study Finds Options Backdating a Common
Practice

July 17, 2006 (PLANSPONSOR.com) - A new analysis
released by the University of Iowa estimates that 29.2% of
companies have backdated options and also tabulated that
13.6% of options granted to top executives from 1996 to 2005
were backdated or otherwise manipulated.

The New York Times reports that the study by Erik
Lie, an associate professor of finance at the Tippie
College of Business at the University of Iowa, and
Randall Heron, of the Kelley School of Business at
Indiana University, used information from the Thomson
Financial Insider Filing database of insider transactions
reported to the Securities and Exchange Commission (SEC).
Lie and Heron examined 39,888 stock option grants to top
executives at 7,774 companies dating from January 1,
1996, to December 1, 2005.

The results revealed that 2,270 companies appear to
have backdated stock option grants to executives. Lie
said the findings were so surprising that he asked
several colleagues to check his numbers, according to the
Times. He and his colleagues concluded that the numbers
probably erred on the low side.

The study also showed, before the SEC’s
Sarbanes-Oxley Act went into effect on August 29, 2003,
23% of unscheduled grants were backdated. The act
required executives to report stock option grants they
received within two business days. After the effective
date of the act, the study said only 10% of unscheduled
grants appear to have been backdated.

The study pointed out two firms associated with a
lower percentage of grant date manipulation –
PricewaterhouseCoopers and KPMG.